Cabinet Committee on Economic Affairs has come out with its decision to pay a production-linked subsidy of Rs 4.50 per quintal directly to cane farmers for 2015-16, in order to provide a helping hand for cash-starved sugar mills to ease the burden of mounting dues. This move would cost the exchequer about Rs 1,147 crores.

Low prices of sugar in retail markets led sugar mills to face the liquidity crisis and millers are obliged to pay about Rs 6,500 crore to cane farmers.

Sugar export subsidy was given to millers in the last two seasons, but the same was discontinued this time due to WTO objections. Power and Coal Minister Piyush Goyal stated that in order to further trim down arrears and support cane growers, the government has come out with a World Trade Organization- compatible scheme. In due course, this will assist to liquidate some of the sugar stocks and meet the export target at least to the extent of 80 percent, he added.

As per the officials, the subsidy shall be paid directly to the farmers on behalf of the mills and will be adjusted against the cane price payable to the farmers towards the fair & remunerative price (FRP), including arrears relating to previous years. The subsequent balance, if any, shall be credited into the mill's account. Priority will be given to settling cane dues arrears of the previous years.

The country is expected to churn out around 26.5 to 27 million tonnes of sugar this season, which will continue the trend of surplus production for sixth consecutive year. In order to ease the stock burden, the government made it mandatory to millers to export 4 million tonnes in the 2015-16 season.